Freemium Medical Care Indian Hospital Shows That A Charitable Hospital Can Still Make A Profit

Aaron DeOliveira points us to an interesting documentary and related series of articles about a hospital in Bangalore India called Narayana Hrudayalaya which is providing top notch medical services to all comers and still making a profit in doing so The trick appears to be a variation on the basic concepts of the quotfreemiumquot model where you pay for higher levels of value along with a price differentiation mechanism within the hospital That is the hospital puts people into different payment buckets based on their ability to pay such that it refuses no one even if they cant pay at all But it also makes some of its profits by offering extra amenities at a premium The medical care is the same for all but other things cost extra
At the Narayana approximately 40 per cent of patients pay a reasonable price for their treatment a small percentage those who quotwant the frills of executive roomsquot pay a premium a majority pays less than the market rate and 10 to 20 per cent pay virtually nothing For the latter category the hospitals charitable wing raises money to help compensate for the material costs of their treatment

In any other hospital those who could not afford to pay their medical bills would simply be sent away until they came up with the cash but at the Narayana the hospitals charity wing helps them to find the money
So again it appears that its a quotsmallquot number who are paying those extras but those really do help make the hospital profitable and allow it to continue on its overall mission

Of course the cynical might suggest that the hospital could be even more profitable if it only catered to those super wealthy who want the extras But thats not necessarily the case From the description in the article the scale of the hospital operation here actually helps to keep costs low So they actually get benefits of the economies of scale by running a large hospital which treats allcomers That allows them to keep their actual marginal expenses lower than others and then by offering premiums for those who can afford it theyre able to produce a profit Interesting stuff